What's Happening to Alan Greenspan?

When Alan Greenspan arrived for his semi-annual visit Tuesday to the Senate Banking Committee, Kentucky Republican Jim Bunning had already blamed him for the economic woes of the last two-and-a-half years and said ?it?d be better if he just went home and retired.? In the middle of his testimony — which was guardedly optimistic about the economy that awaits us when this whole Iraq thing is cleared up — Colin Powell trumped him, telling the Budget Committee down the hall about the Osama bin Laden tape and sending the markets drifting south again. Then CNBC floor-rover Bob Pisani spent the afternoon wondering why none of the traders listened to Big Al anymore.

Certainly Greenspan didn?t sound quite like himself. Recent testimony has usually begun with a long-winded explanation/defense of the very decisions — cutting rates into the bubble, raising them after it had burst, cutting again too late into the bust that haunts us to this day — about which Bunning was ranting. This time he concentrated strictly on the economic events of the past six months — some small signs of growth, quickly pinched off by Iraq and Venezuela — and got off the topic of monetary policy almost immediately.

There?s good reason for that. With only 1.25 rate-cut bullets left in its gun, ?the Fed?s hands are tied until some of the geopolitical stuff clears up,? said Gus Faucher, senior economist at Economy.com. ?There?s not really much it can do for a while.? And so after basically re-reading the Fed?s last official comments on the subject, telling lawmakers that uncertainties over Iraq and terrorism were "creating formidable barriers to new investment and thus to a resumption of vigorous expansion of overall economic activity,? Greenspan decided to take the politicians to task — tactfully, of course — for trying to ruin everything.

Bush?s stimulus plan? Better hold it. ?Unless and until we can make a judgment as to whether there is underlying deterioration going on — and my own judgment is I suspect not — then stimulus is actually premature,? Greenspan said in response to a senator's question. The dividend tax elimination? He supports it, as always — but only if it?s paid for. Wall Street (via New Jersey) Democrat Jon Corzine, looking like this was all too good to be true, had to ask if he had heard Greenspan correctly: Do growing budget deficits cause higher long-term interest rates? Yes, senator, they do.

Indeed, Greenspan devoted entire paragraphs of even his prepared remarks to the perils facing government coffers in the coming years, particularly the prospect of boomer retirement breaking the Social Security and Medicare banks, adding that despite the disputable relationship between government budgeting and economic growth, ?there should be little disagreement about the need to re-establish budget discipline?economic growth cannot be safely counted upon to eliminate deficits and the difficult choices that will be required to restore fiscal discipline.?

Ouch. Granted, Greenspan didn?t go after the White House by name, urging responsibility on the spending side too (that?s you, Democrats) and choosing national defense as his sole example of the ?basic level of service? that should restrain tax-cutting. But this trip to the Hill was a far cry from the one he made two years ago, and sent Bush?s first tax cut careening out of the gate with Greenspan?s near-explicit endorsement. Heck, if Larry Lindsey had said something this far off-topic, he?d have been fired shortly thereafter. (OK, bad example.)

Greenspan, of course, can?t be fired. But in calling for fiscal discipline at the precise moment when it seems the farthest thing from George W. Bush?s mind, he may be trying to make a concerted move back into some kind of spotlight — and it doesn?t look much like one a Fed chief normally tries to occupy. To psychoanalyze, maybe Greenspan is in the hunt for a new legacy to replace the one that?s been so battered by the big three economic shocks (tech bubble, 9/11 and Enron) that have landed his economy in the uncertain spot it?s in today. He?s not our hero anymore — is he trying to be our disciplinarian?

Those who disagree with Greenspan?s optimism about the post-Iraq economy point to debt, not war, as the main drag on a recovery. From corporations to households, cleaning up a badly beaten balance sheet takes precedence over any new investment in income growth. It could take a while yet before it?s finished, but it?s crucial to long-term financial health. Greenspan doesn?t see household or corporate debt as huge problems. But he does seem to think that the last thing the U.S. needs over then next ten years is for government to make it a trifecta. Sounds sort of like a man who?s thinking about retirement after all.